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When I first looked at Galena Biopharma (SYMBOL: GALE) a few weeks ago as a potential addition to my biotech holdings, I found a company that I believe has been unfairly beaten down by circumstances unrelated to its product pipeline, its currently marketable drugs and its future potential for two of its novel products.

Sure, the CEO had to make a humbling appeal to shareholders and ask for forgiveness about insider selling, but it's time to put that nonsense aside and look at the absolute potential that Galena will bring to shareholders. I know, the transgressions of insider selling is kind of a big deal and the market has been preying on that issue to keep a lid on Galena's share price, but, the potential of what the company pipeline will produce far outweighs February's confession.

Lets analyze just a few of Galena's immediate catalysts to justify my reasons for becoming bullish in this company and why I have initiated a position in the stock.

Abstral Launches "Officially" In October of 2013

In October of 2013, Galena announced the "official" launch of its product, Abstral. In September, though, the company made a surprise report from sales of Abstral of $1.2 million dollars during its third quarter financial report.

Abstral is a sublingual (under the tongue) treatment for breakthrough cancer pain. The market for this drug is tremendous because breakthrough cancer pain occurs in the majority of patients who are already being treated for pain management through the use of long term and long acting opiates.

This is a market that will remain stable and treating a patient with a potential best in class method of delivering pain relief will be well received by medical professionals and preferred by patients.

The dollar estimates being placed on a successful sales and penetration campaign of Abstral hopes to cut into the 55% market share currently held by Cephalon and Teva , who both offer products currently in the same class as Abstral, although both use different delivery methods.

The market should remain relatively consistent with market potential sales of over $400 million dollars. Galena, if they promote a strategic sales force and properly market the drug , can garner a significant slice of the potential revenue pool, even during the initial phases of product marketing. The $1.2 million in Q3 was extremely encouraging.

The best part of this drug is that it is a proven winner, already booking sales overseas in Canada and Japan. The key for Galena will be to amass a sales team, either by contract or internal that will focus determinately on marketing Abstral as the best in class delivery system that will treat patients in an expedient and effective manner.

A successful sales campaign of Abstral, coupled with the Dr. Reddy/Neuvax deal, has guided Roth Capital to place a price target of $12.00 for Galena shares.

Neuvax Is Expected To Be A Winner

The next drug that I see as a potential catalyst for Galena is Neuvax. Neuvax had excellent results in its Phase ll trail and was granted a special protocol assessment by the FDA to further the study in a Phase lll trial. The intent is for Neuvax to delay or prevent the recurrence of breast cancer in patients that have been previously diagnosed and treated. The drug works to identify and kill cells that produce HER2 cells, a trigger signal associated to the body's production of breast cancer cells.

Roche already has a favorable treatment in Herceptin, but, Galena is taking the immunotherapy track with Neuvax and has shown to be well tolerated and safe in Phase ll trials. The primary endpoints for Neuvax were met and I believe the statistical significance of relapse between the study and the control group, which was approximately 6%, demonstrates that Neuvax is on track for a successful phase lll.

Of course, some critics do not consider saving 6% of the cancer patients treated is significant, I beg to differ. The FDA has historically granted more latitude for drug approval based on median survival rate and I would expect the same basis for decision with Neuvax.

In January of 2014, Galena announced a strategic partnership with Dr. Reddy's, in India, that will license commercial rights to Dr. Reddy's for Neuvax in breast and gastric cancers.

This partnership significantly increases the potential patient population, leveraging off of Dr. Reddy's global presence. The agreement allows the potential for Galena to add an additional indication for Neuvax related to the treatment of gastric cancer and has the potential to double the estimated market size for Neuvax upon approval.

Although specific payment schedules have not been disclosed,Dr. Reddy's will pay approval milestones and double digit royalty payments on net sales of Neuvax. The deal is significant in that Galena can leverage certain economies that Dr. Reddy's can offer, both logistically and for distribution.

Sadly, there has been a rise of cancer in India and the addressable market has also increased in India related to gastric cancers, a two billion dollar market. The global market exceeds ten billion dollars for breast cancer alone. Dr. Reddy's is an opportunistic and strategic move for Galena which should be well rewarded for sales of Neuvax.

It is important to keep in mind that Galena is one of several leading biopharma companies targeting immunotherapy as a treatment for cancer. Galena, like others, might very well move two steps forward and one step back. I accept the fact that these small cap companies are innovators and will face real world challenges, no different that the behemoths of the industry faced during their early stages of product development.

Small cap biotechs will always have critics as well as bulls. Butinvestors should utilize their own due diligence to separate the hype from the mischief. I tend to listen to what the company is telling me and to take precaution prior to making a purchase decision based on advice from a single source, whether it be a long or short side investor.

Galena Acquired Mills Pharmaceuticals in January of 2014

The acquisition of Mills Pharmaceuticals in January of 2014 provides Galena the worldwide rights to continue with a Phase ll study of Gale-401. Galena expects Gale-401 to qualify and be granted orphan drug status and has projected market sales in excess of $200 million dollars. The drug will treat Essential Thrombocythemia (NYSE:ET) , an acquired disease of bone marrow.

Gale-401 has demonstrated successful safety and statistical results in several phase l trials and the company will seek a 505(b)(2) regulatory filing with the FDA for expedited approval based on study results, safety and statistical data relevance.

Although there will be a cash payment and a potential four million share payment to Mills upon successful FDA approval, the cost and dilution will be a small cost in relation to the benefit provided to the company with the rights to Gale-401.

Galena's Neuvax Patent Strengthened

In February, Neuvax was granted a patent in Austrailia, bolstering the worldwide intellectual property rights for Galena. Because Neuvax is currently in two clinical breast cancer trials, including the Phase lll trial, this patent strengthens and protects Neuvax's position as a leading candidate as it progresses though the trial stage, potentially adding an additional Phase ll study to treat gastric cancer later in 2014.

Galena Balance Sheet

Galena recently reported cash balances of approximately $55 million and roughly $14 million of long term and deferred long term debt. Galena had recently completed a $40 million dollar offering which contributed to the cash balances.

The cash position, coupled with the partnership terms with Dr. Reddy's, puts Galena in a strong financial position to fund the current Phase ll and Phase lll trials, as well as beginning a planned Phase ll trial for gastric cancer later in 2014.

Galena is expected to burn a little over $9 million dollars per quarter, although this should be adjusted higher due to the launch of Abstral and the planned Phase ll study to include gastric cancer for Neuvax. That said, with $55 million in the bank and a projected revenue of Abstral of $5 million, allowing for no increase from the reported Q3 numbers, Galena sits in a position to need no additional financing through all of 2014. If Abstral sales book increased revenues, the cash balances should support operations into at least the first quarter of 2015.

Dilution risk can keep a lid on the stock to some extent. However, if the dilution is accretive to revenue I tend to discount its short term impact. Dilution and capital raises are inevitable for small cap biotechs, and Galena is no different. But, with Abstral officially launched I expect less pressure on future capital raises and the likelihood of more partnerships exist if sales of the drug continue to increase.

The Bottom Line

Aside from the occasional attack from certain media sources, who often twist the facts to fit their company need, Galena should be viewed as a viable and promising immunotherapy company. Already well established with two Phase ll trials as well as a current Phase lll trial, Galena is trading far below peer companies currently at the same stage of clinical study.

True, Wall Street is being less hospitable to small cap biotechs in recent months, however, this only adds relevance to my logic that Galena is ripe for purchase at these levels.

The gaffe of insider selling is fully baked into this price, and I would all but guarantee that we will NOT see insider selling again for quite some time. I almost appreciate that these hands were caught in the cookie jar in that it should put a leash on further indiscretions.

There is always inherent risk associated with small cap stocks and I agree that Galena is not for the faint of heart or for those that might need returns from this investment within a twelve month period. However, based on Abstral and Neuvax, I find the risk reward for a long term investment, in excess of twenty four months, to be quite attractive.

Galena is well positioned to succeed and the CEO is adamant about protecting the brand from misinformation and from management faux pas. I quite appreciated his challenge to bloggers to have them revisit the facts as stated by the company and to separate opinion from accurately reported data.

For me, I will let the gale force winds blow at my back as I watch Galena march through these trials. I am optimistic based on all current trial results as well as from the strategic decisions being made by management.

I initiated a long position in February of 2014 and have made it a top pick in my small cap portfolio, behind Inovio. However, this puts Galena in very good company.

Source: Forget The Sideshow Distractions And Focus On Galena's Pipeline